Impecunious and humble commentator on global financial issues. Deeply and irrevocably commited to City of London.

DJIA +82 points at 23675 +0.35%, S&P 500 +0.1% at 2546, NASDAQ +0.49% at 6783 – Today will be all about whether the FOMC raises the FED rate by 0.25% to 2.50%. Many believe that decision to hike will be taken by Jay Powell and his committee members, even though inflation is only running at 2%

NEW YORK – DJIA -2.11% -507 points at 23592, S&P 500 -2.08% at 2545, NASDAQ -2.27% at 6753 – Sell off continues due to growth worries, possible rate hike by FED and Obamacare being found unconstitutional with healthcare shares suffering.

“Keen, fitful gusts are whisp’ring here and there
Among the bushes half leafless, and dry;
The stars look very cold about the sky,
And I have many miles on foot to fare.
Yet feel I little of the cool bleak air,
Or of the dead leaves rustling drearily,
Or of those silver lamps that burn on high,
Or of the distance from home’s pleasant lair:
For I am brimfull of the friendliness
That in a little cottage I have found;
Of fair-hair’d Milton’s eloquent distress,
And all his love for gentle Lycid drown’d;
Of lovely Laura in her light green dress,
And faithful Petrarch gloriously crown’d.”

John Keats – poet – 1795-1821

Last week has seen bitter strife and an outpouring of hatred in Parliament, Brussels, the high streets as well as in the pubs, coffee shops and other watering holes dotted around the country on the issue of BREXIT – a subject voters are sick and tired of, with most people wanting a quick and long overdue resolution to it, before the country tears itself to pieces – shades of what has happened on the Champs Elysee!

The EU believes that PM May has no chance of getting her deal through the Commons and Europe’s leaders may well be perceived to be doing little to alleviate the UK’s distress, apparently showing few intentions of assisting in this tricky negotiation, even in the knowledge that ‘NO DEAL’ might still stare it in the face!

I think the EU is gambling on the fact that the total impasse that prevails around May’s deal could lead to a 2nd referendum, which could deliver a decision to stay in the EU. This is a dangerous perception and may be a wild gamble on its part, aided and abetted by rumoured reassurances from former PM Blair, who has been all over Europe contending against PM May’s authority. If his activities have been taking place, it does undermine the office of PM as well as the result of the 2016 Referendum. I have this feeling in my water that enough voters could be so dismayed at the lack of apparent compromise from the EU in the negotiations, they might just be persuaded to vote LEAVE again!

For the past two years, all I have heard is negative reasons for staying in the EU and how impossible it is to re-jig 40 years of ECJ legislation in less than a decade. That may be true. However, on the other side of the coin, Europe is the only continent whose growth is close to stagnant. It just seems that so many people want to be cosy in the comfort zone and sadly remain void of that ‘John Bull’ spirit which has sustained the UK for hundreds of years!

This wonderful test series between Australia and India is very evenly balanced. After India’s historic win in Adelaide, the second test in Perth is on a knife edge, with the wicket showing signs of wear and tear on the 4th day. Australia are 193 runs ahead with 6 wickets in hand, as I write. Batting has been tough with Kohli making a brilliant hundred in the first innings to keep India in the game. However, Australia look to be in the driving seat! The high quality of their bowling – Hazelwood, Starc, Cummings and Lyon very much to the fore – may well see Australia square the series!

INDEX

10/12/18

14/12/18

% gain/loss

FTSE 100

6778

6845

+0.99%

XETRA-DAX

10788

10865

+0.71%

CAC40

4813

4853

+0.83%

DJIA

24388

24100

-1.18%

S&P 500

2633

2599

-2.50%

NASDAQ

6969

6910

-0.85%

Hang Seng

26063

26094

+0.12%

Nikkei

21678

21374

-1.40%

Shanghai Comp

2605

2593

-0.46%

INDEX

YEAR TO DATE

FTSE 100

-10.50%

XETRA DAX

-15.59%

DJIA

-0.29%

S&P 500

-3.56%

NASDAQ

-1.37%

HANG SENG

-14.49%

NIKKEI 225

-9.07%

SHANGHAI COMP

-22.55%

Global markets have experienced very turbulent conditions yet again last week, with fearful degrees of volatility and thermal styled gyrations, which continued to unsettle investors across the spectrum. I have been involved or observing markets for over 50 years and I cannot remember such incredible daily levels of gargantuan precariousness, particularly in the US with the DJIA very much to the fore as the main illustrator of uncertainty. Admittedly the advent of technological trading and the contribution of programme trades has exacerbated daily global volatility.

In years gone by, it was comments or interjections made by Salomon’s guru, Henry Kaufmann, US Treasury Secretary James Baker, FED Chairmen Paul Volcker and Alan Greenspan, the Bundesbank’s Tietmeyer, or even the ‘Ken & Eddie Show’ here in the UK that moved markets. But none of them ‘holds a candle’ to President Donald J Trump, who incessantly makes provocative comments on Twitter or to the media on his thoughts on the US economy, the FED, China and trade with monotonous regularity. His comments on the Sino/US trade situation – negative or positive and dependent on his mood – has occasionally caused the DJIA to have 1000-point swings in a day.

Apart from Europe, global equities surrendered ground last week, mainly due to Chines economic data – imports and exports, plus soft retail activity and dispiriting manufacturing output. Also, concern was expressed about the threat of global growth. The Dollar was strong with the Euro friendless in the ring. Lack of agreement on BREXIT talks put the Pound under pressure in the middle of the week but it recovered against the Greenback by Friday to $1.2616. Since the Pound was easier, the FTSE 100, dominated by Dollar earnings, responded accordingly. The FTSE 100 has not really been affected by BREXIT, unless measured against the value of Sterling. In the case of the FTSE 250, down 14.5% year to date, it is more reflective of the UK economy. Even with the focus on BREXIT, UK’S employment data was relatively decent – just 20k jobs lost in the last 3 months with 1.37 million unemployed (4.1%) – many of those I suspect down to retailers. However industrial production and manufacturing output were poor with uncertainty over BREXIT being a potential dominating explanation.

In the US last week, Apple’s shares dropped to $165 – down 28% since 3rd October (Nearly $500 billion in value) on sales concerns in Asia. Costco were also easier after margins were seen to be reduced. Johnson & Johnson was also a big faller (-10% on Friday) over baby powder/asbestos issues. Here in Old Blighty, Interserve’s woes continued with debt being swapped for shares. Interserve is exploring the possibility of offloading RWD Kwikform – one of its construction units valued between £250m and £300m – to the company’s lenders.

However, retail grabbed most of the other main headlines and mainly adverse ones, with Superdry losing 25% of its value on Wednesday and Carphone Warehouse easing by 16%, both on poor numbers. Superdry’s shares are down by 79% this year to date and Carphone Dixon 33% in the same period. Mike Ashley of Sports Direct is never out of the news for long. Sports Direct saw profits down by 27% for the first six months, much of the loss attributable to House of Fraser, whose outlets and units will surely need to be cut substantially. Sports Direct in isolation saw profits were up 15% to £180 million. Shares were down 12.7% on Thursday. There are also issues with Debenhams, whose shares fell to 5.35p (£68 million). CEO Sergio Bucher refused a £40 million interest free loan from Ashley. One suspects this is a ploy he knew would not be accepted. Presumably he will hope to pick up cheap assets down the line, provided there is still a little succulent meat left on the carcass. There are already signs of 80% discounts in the High Street in the hope of boosting Christmas sales. On-Line is where it is at and regardless of any further business rate cuts that may be in the pipeline, the public needs to get used to the fact that there will be less shops on the High Street.

Retail in the UK had a shocker with ‘foot fall’ supposedly down 9% this past weekend. Even some of the great retail brands have seen their respective share prices suffer the ‘slings and arrows of outrageous fortune’ during this calendar year. M&S -16%, Tesco down 7.6%, Kingfisher -34%, Mothercare -51% and Halfords -24%. Conversely Sainsbury, helped by its purchase of Argos, is up 14%, and Boohoo is only down 8% this year but it is up 37% in the past 2 years. I also salute Lord of Wolfson of NEXT. This share price is only down 2% so far this year – a great achievement in very difficult trading conditions. In the first 2 weeks of 2019 we hear trading statements from the following – Next, Debenhams, Morrison, Sainsbury, B&M, Greggs, Topps Tiles, Majestic, Moss Bros, M&S, Card Factory, Dunelm, JD Sports, AB Foods, Tesco, AO World and Mothercare. Don’t expect many of these results to ‘float your boat.’

As Nissan Chairman Carlos Ghosn awaits his fate in Japan about allegations that he concealed the total of his remuneration over many years, it seems that Renault are determined to support him.

It’s a big week for interest rates, starting on Wednesday with the FOMC who, despite rocky stock markets, may well implement a 25-basis point hike and on Thursday the fall in gilt yields suggests the MPC will leave rates unchanged with inflation not a real threat at present, though the Carney/Haldane ‘Bash Street Kids’ will be mulling over a hike. If Brexit was not a cumuli nimbus cloud an increase would be a distinct possibility.

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Last week has seen bitter strife and an outpouring of hatred in Parliament, Brussels, the high streets as well as in the pubs, coffee shops and other watering holes dotted around the country on the issue of BREXIT – a subject voters are sick and tired of, with most people wanting a resolution to it, as quickly as possible, before the country tears itself to pieces – shades of what has happened on the Champs Elysee!

The EU knows full well that PM May has no chance of getting her deal through the Commons and Europe’s leaders metaphorically snigger like hyenas at the UK’s distress, as this undemocratic bureaucratic body do not have the slightest intention of helping out in this tricky negotiation, even in the knowledge that ‘NO DEAL’ might still stare it in the face!

I think the EU is gambling on the fact that the total impasse that prevails around May’s deal will lead to an undesirable 2nd referendum, which could deliver a decision to stay in the UK. This is a dangerous perception and maybe wild gamble on its part. I have this feeling in my water that many voters are so disgusted and dismayed at the arrogant intransigent attitude of the EU, they might just be persuaded to vote LEAVE!

For the past two years, all I have heard is negative reasons for staying in the EU and how impossible it is to re-jig 40 years of ECJ legislation in less than a decade. That may be true. However, on the other side of the coin, Europe is the only continent whose growth is close to stagnant. It just seems that so many people want to be cosy in the comfort zone and sadly remain void of that ‘John Bull’ spirit which has sustained the UK for hundreds of years!

“Good-night? ah! no; the hour is ill
Which severs those it should unite;
Let us remain together still,
Then it will be good night.

How can I call the lone night good,
Though thy sweet wishes wing its flight?
Be it not said, thought, understood —
Then it will be — good night.

To hearts which near each other move
From evening close to morning light,
The night is good; because, my love,
They never say good-night.

Percy Bysshe Shelley – poet – 1788-1824

BREXIT is the most highly charged political conundrum the UK has ever been challenged by, since Suez in 1956. It is not for me to put across my political views on this subject. However, barring a miracle I cannot see anything but defeat for the PM in the lobbies of the House of Commons on Tuesday night (11/12/18). Much as the Tories might like to get behind their PM, a negotiated withdrawal deal championed by the PM and delivered by her civil servants, seems to have taken place and agreed with the EU, to the exclusion of the rest of the Cabinet.

Consequently, the Conservative party, the Labour party and the whole country are viscerally and antagonistically aggrieved and divided. No one likes this deal – ‘remain’ or ‘leave!’ It appears that Dominic Grieve’s amendment means that ‘NO DEAL’ looks an unlikely outcome and if so, it leaves the UK in limbo, resulting in uncertainty prevailing for some time. PM May seems to be running in blinkers and a hood, leaving her oblivious to consensus on BREXIT. There seems insufficient support for ‘Chequers’, however hard her Cabinet attempts to sell it around the country. I wonder if he EU really does want ‘NO DEAL’ as is widely reported? Time alone will tell. If a push came to a shove, might it just be persuaded to change the wording of the ‘backstop’ or accept WTO Canada ++ deal? But that may not satisfy enough members of Parliament, regardless of how fed up the country is and how they crave a quick and positive outcome, so they can all get on with their lives. I fear for PM May’s tenure at No: 10 Downing Street, as the threat of ‘NO DEAL’ or a radical left-wing, profligate Jeremy Corbyn-led Government are beginning to look like realistic alternatives.

What is so frustrating about BREXIT is that the UK is not the only European country with its back against the wall. Germany, France, Italy, Greece, Hungary and Poland are either in a desperate political bind or under economic duress.

Core Spreads sponsored a race and entertained clients at Sandown Park on Saturday. It was a great day’s sport, culminating with a master performance from Nicky Henderson’s ‘Altior’, the current Queen Mother Champion Chaser, seeing off a very brave challenge by Willie Mullins’s ‘Un De Sceaux’, with a little bit in hand. It was a titanic effort in appalling conditions in very soft rain-affected ground.

INDEX

3/12/18

7/12/18

% gain/loss

FTSE 100

6980

6778

-2.89%

XETRA-DAX

11257

10788

-4.16%

CAC40

5003

4813

-3.79%

DJIA

25307

24388

-3.63%

S&P 500

2737

2633

-3.80%

NASDAQ

7279

6969

-4.25%

Hang Seng

26506

26063

-1.67%

Nikkei

22351

21678

-3.01%

Shanghai Comp

2588

2605

+0.66%

INDEX

YEAR TO DATE

FTSE 100

-11.38%

XETRA DAX

-16.87%

DJIA

-0.24%

S&P 500

-1.50%

NASDAQ

+0.27%

HANG SENG

-14.59%

NIKKEI 225

-7.77%

SHANGHAI COMP

-22.19%

You only need look at the two tables above to realise that it is possible that the decade long ‘bull’ run for equities may be coming to an end. International bond markets have been sending out weak signals of anxiety to that effect for some months, particularly in the US, where recession is being discussed as a possibility in a year’s time, when 6 months ago it was unthinkable. How the US economy can be forecasted to drop from 3% growth to zero in a year is hard to fathom. Despite these concerns, US FED Chairman Jay Powell still harbours hopes to raise interest rates possibly this month, though the enthusiasm to keep hiking them next year has quietly abated. Oil prices have dropped by the best part of 30% in recent months, which adds fuel to the fire to those who believe the world’s economy may be slowing down. The fact that the price of gold has quietly crept up to $1245 an ounce also provides further evidence of the ‘flight to quality.’

Few would argue that some equities in the US have looked very frothy particularly the large tech stocks like Amazon and Apple, which have lost 17% and 27% in value respectively in the past two months. Energy stocks have also fared badly as Exxon Mobil has evidenced – down 10.5% in the same period. These stocks were due some sort of correction. However, the overall 3rd quarter earnings season has not looked too bad. Defensive stocks such as McDonald’s have performed well – up 11% since October and Walmart down only 1%.

As a market observer over many years, I have seen many extraordinary movements such as the catastrophic fall in the 1987 crash, the ‘TNT’ collapse in 2000 which was painful and slow but orderly and the demise of equities, courtesy of the banking debacle in 2008/9. However, I do not consciously remember such excessive daily volatility as been displayed in recent weeks. New York was closed on Wednesday out of respect for President George HW Bush. Then on Thursday the DJIA traded within a 1000-point range. By any standards this is gargantuan and further illustrates the huge level of uncertainty that prevails.

I don’t think I can ever recall any politician having had such incredible daily influence on global stock markets than President Donald J Trump. Last week he chose to put a temporary block on the ‘entente cordiale’ with President Xi on trade war talks, which in fairness was given some momentum by news of the arrest of Chinese telecommunications giant Huawei Technologies CFO Meng Wanzhou and her possible extradition to the US. This could raise tensions between these two trading adversaries, when it is important to the world that they should be economic friends.

As you can see above, Europe did not fare well either. Many punters wanted to blame BREXIT for the FTSE 100’s poor performance – not so, really, though economic data on PMI construction, services and manufacturing was marginally discouraging. The demise was more to do with global issues with energy, mining, banks and some retail stocks dipping in value under the pressure. Again, it is interesting to note that, pari-passu with the US in the last 2 months, the following shares have been larupped – BP -15%, Prudential -17%, Aviva -20%, Glencore -18% and RBS -14%. Only BT Group has fared well in this period +12%.

Even though the last few weeks of this year look as if they will be disappointing, with little prospect of a ‘Santa Rally’ 2018 has been a mega year for M&S activity – over $3.3 trillion worth of deals up until the end of September. The media sector started dominating the agenda with Comcast’s purchase of SKY for $11.6 billion, which triggered Walt Disney’s $71.3 billion purchase of 21st Century assets. Then AT&T bought Time Warner for $85 billion. Healthcare was also prominent with TAKEDA taking over Shire for $46 billion and CVS Health buying AETNA for $69 billion. The defense sector saw United Technologies slotting Rockwell Collins in to its portfolio for $30 billion. Last Monday saw GSK announce that it would buy the oncology titan TESARO. GSK’S shares dropped more than 7% after it unveiled its first major acquisition under CEO Emma Walmsley, a $5.1bn cash deal. GSK is paying a nearly 200% premium on Tesaro’s undisturbed share price, just a few weeks ago. The UK group’s drug pipeline is widely believed to have fallen behind competitors in recent years and M/S Walmsley, who has been in the post since April 2017, has been looking to boost returns. This looks a poor deal as M/S Walmsley seems to have done a 180-degree turn, having sold it cancer drug business to Novartis a couple of years ago to concentrate on health care. The market also perceives Glaxo has over paid for this US biotech. We shall see. 2019 may also be a good year for M&A as after this major stock market sell-off companies will be looking for cheap and complimentary bargains.

Interserve may be a share to keep a watching brief on, as it attracts some adverse publicity like Carillion and Weir did, though government contracts are not as prevalent as with the latter two. It is interesting to note that the Sunday Telegraph pointed out that foreign investors have taken legal advice against the threat of water companies and other utilities being snatched from private ownership in to public ownership without due process. Look out for Carphone Dixons trading statement on Wednesday. Few are expecting upbeat news and before too long the market expects action from the US DOJ on Hewlett-Packard’s complaint that Mike Lynch’s Autonomy may have been over generously valued at $10.3 billion in 2012. Finally, Mike Ashley’s trading statement for Sports Direct on Thursday should provide a useful barometer on the state of the high street pre-Christmas.

David Buik

Communications

Mobile – 07788 144 877

Financial spread bets and CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 75% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work and whether you can afford to take the high risk of losing your money. Click here to read the full risk warning.